What Every CEO Should Know About Managing in a Shrinking World

Auto makers need to view the world as one big business opportunity, says former GM executive Dave Herman. When it comes to emerging markets, that means making serious financial commitments, recruiting local talent and learning to live with political uncertainties.

Future CEOs in waiting, listen up.

To succeed in business, you have to be global. And to succeed globally, you have to really mean business.

That’s the bottom-line advice from Dave Herman, who recently shared life lessons learned from his 29 years at General Motors and beyond with a group of graduate students at the Cambridge University’s Judge Business School.

Herman, an American who spent most of his time running operations outside of the U.S. for the Detroit auto maker, has experienced firsthand what works and what doesn’t when it comes to global expansion.

During his six years as the head of GM’s Adam Opel subsidiary, he guided the German operation through one of its most successful periods in the past several decades.

Herman also paved the way for GM in Russia, where he spearheaded a joint-venture deal with local manufacturer AvtoVAZ that resulted in the launch of the successful Chevrolet Niva cross/utility vehicle there.

He currently is chairman of Sollers, the Russian assembler that is building both Mazda and Ford vehicles for the fast-growing local market.

Having a global plan and perspective long has been a no-brainer for the auto industry, he points out, citing WardsAuto/Automotive Compass data indicating emerging markets will build more than half the world’s vehicles in 2014 and that the top 10 vehicle architectures will account for more than 25% of global volume in 2017.

But commitment and execution have been the big stumbling blocks for many companies in penetrating markets outside their home regions, he tells me in a phone conversation following his Cambridge talk.

Cracking that code and simultaneously keeping numerous far-flung global operations running at full speed – much like those frantic plate-spinners from 1960s TV’s “The Ed Sullivan Show” – will be the task of the new breed of managers emerging from grad programs at Cambridge and elsewhere, Herman says.

He emphasizes two critical strategic pieces auto makers rarely have gotten right in their forays into emerging markets: financial backing and human resources.

“Never bet a buck when you can bet a million,” Herman says, a philosophy he attributes to former GM Russia colleague Warren Browne, who now operates his own Detroit-area consultancy.

Too often, companies tiptoe into markets halfheartedly, he says, unwilling to spend enough money to establish a firm foothold for the future, even when long-term growth appears a sure bet.

A case in point is GM’s divergent approaches to China and India. It jumped into China with both feet in 1995 and is now a market leader. Its success there was one of the few bright spots as the auto maker headed toward its U.S. bankruptcy in 2009.

In contrast, GM has made a far less-aggressive march into India, where it remains a marginal player as a result.

That dichotomy reflects popular thinking in the 1980s and 1990s, when auto makers found it difficult to finance overseas expansion in the face of more lucrative home-market investment opportunities promising much quicker payoffs, Herman says.

“If you said to somebody, ‘Why not invest several hundred million dollars in some market like India?,’ the response would have been “Look, even the slightest move in the (sales-volume) needle in the U.S. dwarfs the significance of what one could do in that foreign place.’ Underline the word ‘foreign,’” Herman notes.

When auto makers did enter a new market, they often failed to cultivate local talent, he says, citing a common practice of rotating management through foreign outposts for short stints, then pulling them back home for what often was seen as a higher-level position.

That musical-chairs approach made it crystal clear throughout the organization the home market was all that really mattered, and it left foreign subsidiaries devoid of top talent and lacking in power.

“Creating a worldwide team…is easier for some companies than others,” he says, pointing to Volkswagen as one auto maker that does this well. “If you’re going to have a truly successful worldwide enterprise, then your board and your management have to recruit people outside what you regard as your home market.”

He cites Kia as another company that gets it.

“(They) know how to hire local people and create relationships everywhere in the world,” Herman says. “They don’t do it with ‘Hey, Korea is more important than everything else and let’s just see what we can do somewhere else.’ They view the world as a single market.”

Companies sometimes shy away from making big commitments in emerging markets to avoid having to navigate tricky political waters, another shortsighted view, the one-time Opel chief believes.

The winners will be those that realize “there are going to be difficulties in doing business in these emerging markets, but (know) they have to do it,” he says.

Renault-Nissan CEO Carlos Ghosn appears to have arrived at the same conclusions Herman drew for his Cambridge audience.

“In the past, Renault had a tendency to carry out commando-type assaults (into new markets),” he told media during a recent launch program for the Zoe electric car. “But the infantry didn’t always follow. We went in, we stuck a flag in the ground, we set up an operation and we stayed at 1% market share without making money.

“There was no follow through,” Ghosn is quoted as saying by The Wall Street Journal. “That’s over. Today, we have the commandos, but the infantry is right behind us. We target a market, we go in and we occupy the terrain.”

In other words, no more tiptoeing into new markets and no more retreat.

CEO Wannabes should consider that the new blueprint for success, gratis from a couple of guys who have had ringside seats.